Retirement Income Seekers Are Now Turning to Annuity Purchases. And This Is Why…
Individuals are finally buying annuities once more, and for a number of solid reasons.
A couple of years ago, there was an increasing decline in the money that was being directed towards annuities, and it seemed there would be no bounce back.
Fortunately, annuity purchases have come back stronger, and it seems like the demand is likely to experience an upward trend for months to come.
A Sparked Interest in Annuity Purchases
As a matter of fact, during the second quarter of 2018, the total amount in annuity purchases experienced a 15 percent increment in comparison from the first quarter, as per data delivered by LIMRA.
This is a stark difference to the picture that was painted in 2016. At the time, annuity purchases had experienced a 7.6% dip from the data recorded in 2015.
Indeed, the 2018 record of annuity purchases has been considered the highest in the past three years.
Conventional wisdom dictates that the increase could be as a result of the termination of the fiduciary rule regulations that was ordered by the Department of labor a couple of years ago. Nevertheless, there is a flip side to this coin.
Baby boomers that have aged have an insatiable desire to have a reliable retirement income, and this could be the reason behind the rapid change in pattern and behavior.
In fact, surveys carried out on aging baby boomers on the edge of retirement indicates that they no longer require excessive growth to be shown on their portfolios.
Instead, they have a stronger desire to secure their lifetime income, as well as a safety principal in place. Hence, turning to annuities might just be the solution they need to achieve these goals.
Moreover, analyzing the trends deeper shows that there is a demand by baby boomers to seek retirement income, which further reiterates the argument that this could be the reason behind the steady increase in annuity purchases.
What Are the Different Types of Annuities out There?
Before proceeding any further, it is vital to first have a quick recollection of the different annuities one can purchase:
Immediate annuities- In this case, the purchaser makes a deposit to the insurer and in return receives the promise of guaranteed payments by the insurer for a given period of time, or for life, depending on the selection that he or she makes.
Deferred fixed annuities- When it comes to this kind of annuity, an individual first makes a deposit that is credited with a certain interest rate on a yearly basis. The interest rate is highly influenced by the type of insurer that one selects, as well as on the current market benchmark.
Fixed indexed annuities– With this type of annuity, the deposit that you make is subjected to interest, but the interest is calculated depending on market formulas and benchmarks, as well as the performance of investments.
For example, one can find that the interest can be a reflection of the percentage of a certain return that is issued per the stock market index, e.g. 10% every year. Nevertheless, one should bear in mind that these annuities can be difficult to understand.
Variable annuities– When it comes to this type of annuity, your selection is based on the investment type that is provided by the insurer. After you make a selection, your account will be credited with the return that each investment makes. Of course, factoring in things like fees and expenses.
Understanding These Annuities
For any first-time annuity purchaser, it is vital that they understand that the first three annuities provide them with guarantees.
For one, they guarantee principal. Additionally, they also guarantee an individual to some extent, a sort of income.
On the other hand, when it comes to variable annuities, there are very few guarantees available. As a matter fact, one will be looking at extra fee charges not to mention a minimum retirement income.
So it’s no surprise that when we analyze the entire spectrum of recent annuity purchases, the writing on the wall is that annuities with the least risk and the highest guarantee of lifetime income are the ones that are steadily increasing.
Additionally, another vital reason for the increase in annuity purchases is that they have resulted in a larger income payment than they did a few decades back.
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